Ratio analysis using Excel

April 19, 2013

Reinhart and Rogoff have given us a fantastic demonstration of the sheer power of Excel when it comes to the analysis of the political economy. While their conclusion that catastrophes result when the ratio of public debt to GDP exceeds 90% turns out to be sheer nonsense, we mustn’t lose sight of the fact that Excel is a powerful tool indeed when it comes to political economy ratios. I think it only proper, then, to devote a complete post to political economy ratio analysis using Excel. Here are five ratio based questions in which I think Excel demonstrates its great power. For instructional purposes, I recommend that Reinhart and Rogoff practice with these examples.

1) QUESTION: Since the beginning of industrial capitalism in say 1775, what is the ratio of human generations (25 year periods) in which the global system had either a major systemic crisis or devastating war to the number of periods in which it didn’t? ANSWER: In our spreadsheet, we find there are 10 such periods, 10 of which present crises, wars, or both and exactly zero which don’t. Using the mastery of Excel, we find the ratio is #DIV/0!

2) QUESTION: Continuing with the long term, what is the ratio of governments which have been controlled by concentrated wealth to those in which true democracy ruled? ANSWER: Using the sophisticated data base features of Excel, we assemble a comprehensive listing of governments and find the ratio is exactly #DIV/0!.

3) QUESTION: John Kerry tells us today he is in a “confrontation with evil”. What is the ratio of foreigners killed by American nuclear weapons to Americans killed by foreign nuclear weapons? Excel provides the answer: #DIV/0! What is the ratio of wars started by the US against foreigners since WW2 to those started against the US? In an instant, Excel tells us it’s #DIV/0!

4) QUESTION: What is the ratio of the world’s median income to the wealth of the richest man, Mexico’s Carlos Slim? Excel makes this easy by enabling one to view the tiniest of fractions! The ratio is .0000017%, so small it’s not easily understood. If Mr. Slim is the distance between here and our furthest planet Neptune, then this ratio tells us that the median income is a bit less than half the 100 miles between the luxury confines of Park Avenue and the mansions of the Hamptons, a reasonably doable bike ride. What a great tool is Excel!

5) QUESTION: Returning to our Secretary of State, what is the ratio of the median net worth in the US to that of John Kerry? ANSWER: Again, how easy with Excel! It’s .025%. If Kerry were the distance between Park Avenue and Beverly Hills, 2,448 miles, the median net worth would be just over half a mile, perhaps a short walk to the local grocery store.

So that’s it. Despite the ineptness of Reinhart and Rogoff, I think it’s clear that when it comes to the ratio analysis of our political economy, few tools are more powerful than Excel.